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The biggest online shopping day of the year can offer a guide to holiday stock shopping, too.
The news appears to be mixed regarding the performance of Cyber Monday, the retail industry’s big online holiday sale kickoff event.
Cyber Monday Results
Wal-Mart (NYSE: WMT) teased investors by reporting that customers viewed 1.5 billion pages on its website over the holiday weekend, and that electronics were its biggest sellers. However, the company did not disclose the number of orders or its profitability, and the deliberate obfuscation always makes me suspicious.
Other analytics providers said total sales on Cyber Monday were up 17% over last year, with mobile sales up 29.3%, accounting for 20% of all transactions. The average transaction price was flat at about $133.
On a less positive note, the National Retail Federation said total Thanksgiving weekend spending fell 11% to $51 billion. Some of this was attributed to consumers not waiting for Black Friday or Cyber Monday to make purchases, and also due to more in-store sales.
What are investors to make of this data? How can we make money using this information?
First, we need to recognize that this was not a blockbuster holiday season. We aren’t seeing increases across the board. We saw increases in online shopping, which have slimmer margins, but total spending declined. So in essence that’s a double whammy – declining sales and slimmer margins.
To that end, I would avoid retail stocks…for the moment. What is not reflected in these results, however, is declining gas prices. I believe that is going to further influence holiday shopping as we get close to Christmas. People will realize they have a little more money than expected, and possibly drive stocks higher.
I think the move for the mid-level retail sector – companies like Macy’s (NYSE: M), Target (NYSE: TGT), and Dillard’s (NYSE: DDS) – may come later this month. I’d wait for the first bit of good news out of the sector to buy into one of these stocks, however.
That said, I’m more optimistic on other stocks. Apple (NASDAQ: AAPL) should outperform this season. Electronics continue to lead the way, and Apple’s products always make for good gifts around the holidays.
The other play is to buy Amazon (NASDAQ: AMZN). I do not take bears seriously on the company – the ones who say Amazon doesn’t make a profit and thus should be tossed aside. On the contrary, I think Amazon remains the single greatest retailing story in the history of the world. It continues to invest in itself, in R&D, and its Prime service has proven to be sticky and a huge revenue generator.
There was also good news from luxury retailers. The economy has been strong enough that luxuries have had a leg up on mid-level retailers. People with money spend it at the high-end shops. In addition, the dollar is gaining strength while the euro is weakening, which helps the luxury retailers based in Europe.
I would thus take a close look at Michael Kors (NASDAQ: KORS), Ralph Lauren (NYSE: RL), and for a possible turnaround at Coach (NYSE: COH) – at least if you’re going to invest in retail this holiday season.
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